How to Automate Invoice Approval Workflow and Improve AP Productivity

    How to Automate Invoice Approval Workflow and Improve AP Productivity

    by ProcureDeskLast Updated : Jul-31-2020

    Are you a finance manager or controller struggling due to ineffective supplier invoice approval workflow?

    Then THIS strategy is for you so you can finally gain complete control of your invoice approval workflow.

    Using this strategy, our Clients have seen anywhere from a 35-50% reduction in the time spent processing invoices.

    In this article, we will cover:

    1. How to assess the cost of your manual invoice processing.

    2. How to design an effective invoice approval workflow.

    3. How to use AP automation to supercharge your invoice approval process.

    We aim to eliminate the maze and provide a simple process that helps you reduce the time spent processing invoices. Along with time savings, it also has added advantage of fraud prevention.

    But before you move forward, download the invoice process optimizer

    Download our Invoice process optimizer

    Then follow along and see how you can cut 40% invoice approval time by leveraging these strategies. and follow the strategies to reduce the invoice processing time by 40%.

    Let’s dive into this blog and learn more about automating invoice approval workflows!

    Why Is Automating Invoice Approval Workflows Important?

    An ineffective invoice process is why your team always struggles to process invoices on time and even risks your invoice process to human error, considering complex invoice details.

    The difference between a well-run Accounts payable process function and a chaotic AP process is the effectiveness of the supplier invoice approval workflow.

    It is not the case that the controllers or CFOs don’t understand the criticality of AP automation. Most companies have invested in some form of invoice approval software to automate the review and approval process. But is the automation helping in reducing the time spent on processing invoices?

    What Is The AP Business Process?

    Most of the invoice approval process combines manual or automated processes. The process is generally cobbled together.

    Here is a common AP business process:

    1. Receive invoices via email or mail.

    2. Scan them in a shared folder or online storage like Dropbox.

    3. Followed by a manual process to review the invoice and identify who needs approval.

    4. Email the person and then send multiple reminders to get the invoice processed.

    5. Finally, enter the invoice into your accounting system, like QuickBooks, so that they can process payment to the supplier.

    The Invoice Maze

    Does this process look familiar to you?

    Invoice maze

    We call this an Invoice maze, and you need to be very skilled to navigate this maze. Give this process to a new person, and they take weeks to understand the process’s nuances fully.

    Yes, we exaggerated about the weeks!

    How To Create An Efficient Invoice Processing System?

    You must identify your optimum process to ensure an efficient invoice processing process. Afterward, you can choose your preferred software to automate your invoice approval process.

    Yes, it is simple, but still, many companies directly jump into automation first without assessing the efficiency of the current process.

    The key is not to look at the process in isolation but to review this in conjunction with your purchasing or procurement process.

    What Is The Cost Of Your Manual Invoice Approval Process Or Workflow?

    Increasing your team’s productivity starts with understanding the cost of productivity loss. It helps you build the business case and provides key metrics to measure the return on investment in this process.

    Here is a typical invoice processing cost with a manual invoice management process:

    Invoice Processing cost - Benchmarks

    You could use the following cost to calculate your invoice processing cost or some existing benchmarks. The following is the breakdown

    a) Systems cost

    These costs include all the systems you are using to process the invoices. Here are some examples of the system costs

    1. A tool to capture invoices and scan them.

    2. A tool to store invoices online for easy access.

    3. A tool for routing the invoice for approval and sending reminders.

    4. A tool to upload data to your accounting system.

    The easiest way to calculate this cost is to look at the past 12-month invoices or your credit card statements and identify charges related to these systems.

    b) Data entry costs

    This is the cost to enter the data into your accounting system manually.

    As per a recent survey by Levvel, 86% of SMEs and 65% of mid-market firms are still processing invoices manually.

    The easiest way to calculate this cost is to identify the FTEs working on processing the invoices. You might have multiple shared resources working on processing invoices if you are even processing 100-150 invoices/per month. You could assume .5 FTE as the cost.

    The cost per FTE would vary, but $65,000 annually is a safe bet for the cost.

    c) Time spent on approvals

    As per a recent study by research firm Levvel, the average invoice approval cycle is 2-3 approvals per invoice.

    This is the time spent by different people in approving the invoices. You could easily assume $100/hour or more as the cost, and based on the time spent, one can calculate the approval process cost.

    d) Calculating your invoice processing cost

    Now that you have all your costs, you must take the annual volume and total cost and calculate the average cost to process an invoice.

    Let’s assume you are processing 3000 invoices annually. If the average cost is $10, as some of the benchmarks suggest, the total annual cost is $30,000. Now that might not be a lot depending upon your company size, but this cost would also increase as you scale your business.

    So any measure you take now to reduce the time spent on processing invoices will help to reduce the cost over the long term.

    Creating Your Invoice Approval Process Flowchart

    An invoice approval process is one of the biggest challenges for the A/P departments. As per a recent survey, 60% of the participants reported the Invoice approval process as one of the challenges for the AP team.

    It is either too long or complicated, so they spend too much time on it.

    Some of you might say that it is better if the invoice takes a long because then we can pay vendors late payments and have less strain on the working capital!

    This might be true in some cases but not always. Here are some of the challenges your company might face throughout the invoice approval process:

    1. Lack of complete visibility into your cash flow

    If an invoice is stuck in an approval process, it is most likely not yet entered into your accounting system. The finance department then has to deal with a lack of visibility into the working capital requirement.

    Granted, you can look at historical invoice data to come up with some estimates on what your monthly outflow is. But if you are borrowing money to fulfill your A/P requirements, you could be paying additional interest, which you can easily avoid.

    2. Payment delays lead to late fee charges

    The vendor might charge you late fees if the invoice is paid late. Now in the short term, that might not be a lot of money but over a year, the late fees could easily add up. When was the last time you checked on the late fees?

    3. Creating your invoice workflow flowchart

    Here is a sample invoice process workflow:

    Invoice Approval Process Flowchart

    How To Improve Your Current Invoice Approval Process?

    You need to identify the process flow and current bottlenecks to improve your current process. It might sound overwhelming to create an invoice workflow flowchart, but in fact, it is very simple.

    Here is the step-by-step process.

    Step 1

    First, list all the methods by which you currently receive vendor invoices. If possible, break up the % of invoices by the method you receive them. For example

    1. Paper Invoices received by mail – 30%
    2. Invoices received by email – 20%
    3. EDI invoices – 30%
    4. Invoices sent directly to the stakeholders – 20%

    Step 2

    Next, detail how these invoices are processed after they have been received. For example, you enter the invoice data in an invoice workflow system. Or you could send the invoices for review and then key the data in the relevant system.

    Step 3

    After that, you need to detail your current approval process. Here is what you need to cover in this step

    1. Who is approving the invoice, and when? For example, an invoice needs to be approved when there is no PO # on the invoice. If all your invoices are currently sent for review, then clearly mention why you are doing that.
    2. If there are exceptions, then who review the invoices?
    3. Do you have different authorization limits based on the invoice amount? If yes, mention that in the workflow

    Step 4

    The next step is identifying areas to optimize the invoice approval workflow.

    Here are some questions you should ask yourself and your team

    1. Can we move some vendors to electronic invoices so we don’t have to scan paper invoices?
    2. Can we move some vendors to EDI/Electronic data interchange so there is no need to send invoice documents? Most of your common vendors, like, already support this.
    3. Can we implement a three-way match process so that the invoices can be automatically matched to the PO and receipt, hence avoiding the need for workflow?
    4. Can we set up tolerances so that the invoice can be automatically approved if the invoice amount is over the order amount but within the set threshold?

    Automation does help with some of these optimizations, and we will cover that in the next process

    How Do You Improve Your Invoice Approval Process With Technology?

    In this section, we will look at optimizing the invoice approval workflow with the help of technology. We aim to highlight key technology features for setting up an effective invoice approval process.

    Reducing Time And Effort To Input Invoices

    The first step of optimizing the invoice workflow is to streamline the process of capturing the invoices from your vendors. We recommend centralizing the process for accepting invoices from your vendors also to boost your supplier relationships.

    There are a couple of ways technology can help you do that.

    1. Automatically receive invoices using EDI/cXML. EDI is Electronic Data Interchange, an old data standard for electronically exchanging documents. You could also use cXML, which is more modern and well-suited for procure-to-pay transactions. If you use a modern purchasing system, these capabilities are already built for you.
    2. Use a supplier portal so that suppliers can submit the invoices electronically. This process is very effective when you are using the purchase order. If you use a purchase order, suppliers are always invoicing against a purchase order, eliminating data entry errors.
    3. Set up a centralized email for your suppliers, for example,, and ask the vendors to send the invoices to that email only. It solves reduced paper invoices and ensures that the invoices are not lost.
    4. A system to scan incoming invoices on paper.

    Using A 3-Way Match Process For Auto-Approving Invoices

    Once the invoices are captured, you need to automate the matching process for matching the invoice with the purchase order and receipts, also called a 3-way match process.

    The idea here is to use technology so your finance team can check the invoice against an approved purchase order so that you don’t have to manually figure out whether the invoice is approved for payment.

    If it is a tangible product purchase, a receipt confirms that the buyer has received it.

    If it is a service purchase, we highly recommend an invoice review process so that the end consumer can confirm whether the service has been received.

    Automated Matching Of Purchase Order

    We talked about the automated matching of the purchase order, invoices, and receipts, but what happens if these documents don’t match each other?

    For example, you ordered 10 widgets, and the vendor shipped 10 but invoiced you for 11.

    The exception management can be fully automated if you have an integrated purchase order and an invoicing system.

    All you have to do is to define business rules on what should happen when the system finds an exception. For example, you could set up a process in which the original requester should be automatically notified to review the exceptions in the system and provide guidance.

    In our experience, ProcureDesk customers get the biggest benefit in the invoice matching process because the AP team is not spending time on routing invoices for approval.

    Now if you have a single-person AP team, the automated matching and routing process is necessary!

    Integration to Avoid Redundant Data Entry

    If you are using an integrated purchase order and invoicing system, you have entered the data once, or the invoices are electronically received.

    You don’t want to lose these productivity improvements by again spending time entering the data into your accounting systems like QuickBooks, Sage Intacct, or Netsuite.

    So the key piece of the integration is automated data sync with your accounting system so you can avoid redundant data entry.

    Communicating With Stakeholders For Better Adoption

    As we noted above, the biggest benefit of automating the invoice approval workflow is the ability to match and route the exceptions for approvals.

    Employees are a key part of the approval payable workflow process, so we need to ensure we communicate the changes to them.

    You need effective communication with employees to ensure the new approval process is well adapted. Here are the key things to address in internal employee communication

    Receiving Invoices From Vendors

    In most ProcureDesk deployments, we see a change in how the A/P department receives invoices. You are changing from a manual paper-based invoicing process to an automated one, and that is what you need to communicate to employees.

    For example – if you need suppliers to send invoices directly through a portal, then employees working directly with the vendors can communicate it to them. We are not saying you should inform vendors about this change through individual stakeholders. What we are suggesting is that you can use employees to reinforce the message to the vendors.

    How Does The Exception Process Work?

    If you are implementing a new invoice exception review process, employees should know what to do when they request to resolve an exception.

    Let’s say the employee ordered 10 reams of paper from Amazon for your paper documents. The order is delivered, and Amazon sends you the invoice, but there is no receipt.

    Even if your purchasing system automatically sends automated emails to remind users to create the receipt, you still need to let employees know what is expected of them. In this case, they must know that a receipt must be created.

    Similarly, if the unit price doesn’t match between relevant documents, which resolves the exception, and what do they need to do to resolve it effectively?

    Remember that your process will not be perfect on day 1, so you must have a feedback loop setup.

    It doesn’t have to be complicated. A simple process like emailing the feedback is good enough to start with.

    How To Track If Invoice Automation And Approvals Are Working

    In the previous sections, we discussed setting up the invoice approval workflow and the related automation of capturing invoices electronically.

    In this section, we want to provide markers to track whether the invoice automation and approval work. If you are just getting started with invoice process optimization, the following KPIs should be a good start.

    Number of electronic invoices submitted

    What is this?

    This measure tracks the invoices which are submitted electronically. This includes invoices submitted through Electronic Data Interchange or a supplier portal.

    Why is it important?

    Electronic invoices not only reduce the error from an invoice-matching perspective but also reduce the data entry burden on the A/P team

    How to measure it?

    • Total invoices submitted electronically/ Total invoices submitted for the month.
    • This is a monthly metric.
    • You should see a month-by-month increase for this metric.

    Invoice exception rate

    What is this?

    The number of exceptions is the total number of exceptions generated by the system. An exception is generally an issue with an invoice. For example – the invoice quantity does not match with the order quantity or the invoice total doesn’t match the order amount.

    Why is this important?

    This is a direct measure of the accuracy of the data submitted by your suppliers. The lesser the number of exceptions, the more accurate the data. Now, this is not always the vendor’s fault, it could be that the purchase order was not generated properly, and that caused the mismatch between the purchase order and invoice.

    How to measure it?

    • The invoice exception rate is measured as
    • Total invoice exceptions in a given month/ Total invoice process in a month.
    • This is a monthly metric; you should see a month-on-month downward trend.

    Average time from invoice entry to send for payment.

    What Is This?

    This is the average time it takes for you to process an invoice. There are multiple steps to process an invoice. You could look at each subprocess, but to start with, you can measure the end-to-end cycle time.

    Why is this important?

    This is a direct measure of the efficiency of the invoicing process: the more efficient the process, the higher your team’s productivity.

    How to measure it?

    This is an average of the time it takes to process each invoice for payment. You should be able to get this easily from your invoice processing system

    The Bottomline

    An efficient invoice approval process is the key to increasing the productivity of the Accounts Payable team when going through the verification process of your invoice.

    Implementing an invoice approval process

    1. You can reduce the time spent on processing invoices for payment.
    2. You can increase compliance to set purchasing policies by matching the invoices to pre-authorized spend.
    3. Take advantage of early-payment discounts. Since you can process invoices faster, you can take advantage of any early pay discount.

    So if you are looking to get better cash flow visibility without spending endless hours on processing invoices, implement an invoice approval workflow to streamline the purchase-to-pay process to make it easier for your department heads and relevant personnel to navigate this complex process.

    If you would rather see how our tool can supercharge your invoice approval process,
    Schedule a free demo, and we will show you how to navigate the invoice maze successfully.


    What you should do now

    Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.

    1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
    2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
    3. If you’d like to enhance your knowledgeabout the purchasing process, check out our blog or Resources section.
    4. If you know another professional who’d enjoy reading this page, share it with them via email, Linkedin, Twitter.
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